Does Function Follow Organizational Form? Evidence From the Lending Practices of Large and Small Banks

Allen N. Berger (), Nathan H. Miller, Mitchell Petersen (), Raghuram G. Rajan and Jeremy Stein ()

No 8752, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Theories based on incomplete contracting suggest that small organizations may do better than large organizations in activities that require the processing of soft information. We explore this idea in the context of bank lending to small firms, an activity that is typically thought of as relying heavily on soft information. We find that large banks are less willing than small banks to lend to informationally 'difficult' credits, such as firms that do not keep formal financial records. Moreover, controlling for the endogeneity of bank-firm matching, large banks lend at a greater distance, interact more impersonally with their borrowers, have shorter and less exclusive relationships, and do not alleviate credit constraints as effectively. All of this is consistent with small banks being better able to collect and act on soft information than large banks.

JEL-codes: D21 D23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ent
Date: 2002-01
Note: CF
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Related works:
Working Paper: Does Function Follow Organzizational Form? Evidence From the Lending Practices of Large and Small Banks (2002)
Journal Article: Does function follow organizational form? evidence from the lending practices of large and small banks (2002)
Journal Article: Does function follow organizational form? Evidence from the lending practices of large and small banks (2005)
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